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In the long run, if an economy's consumption spending is $5 trillion, its planned investment is $2 trillion, government spending is $1 trillion, net tax revenue is $1 trillion, and household savings are $2 trillion, what should the total output be?

a. $7 trillion
b. $8 trillion
c. $11 trillion
d. $3 trillion
e. $5 trillion

Answer :

Total output = GDP + Household savings= $9 trillion + $2 trillion= $11 trillion. Therefore, option (c) $11 trillion is the correct answer.

Given, Consumption spending = $5 trillion Planned investment = $2 trillion Government spending = $1 trillion Net tax revenue = $1 trillion Household savings = $2 trillion. Now, Let's use the formula for calculating GDP from the expenditure approach, GDP = Consumption spending + Planned investment + Government spending + Net exports GDP = $5 trillion + $2 trillion + $1 trillion + $1 trillion [As net exports = Exports - Imports]GDP = $9 trillion. However, we have been asked to calculate the total output which is the sum of GDP and household savings. Thus, Total output = GDP + Household savings= $9 trillion + $2 trillion= $11 trillion. Therefore, option (c) $11 trillion is the correct answer.

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